What Makes Successful Frameworks Rise Above the Rest PDF

What Makes Successful Frameworks Rise Above the Rest Business leaders can better assess and strengthen analytical frameworks using seven evaluation criteria. David Gray Reprint #62424 sloanreview.mit.edu ...

What Makes Successful Frameworks Rise Above the Rest Business leaders can better assess and strengthen analytical frameworks using seven evaluation criteria. David Gray Reprint #62424 sloanreview.mit.edu  MI MITT SLO SLOAN AN MANA MANAGEMENT GEMENT REVIEW What Makes Successful Frameworks Rise Above the Rest David Gray Business leaders can better assess and strengthen analytical frameworks using seven evaluation criteria. scientists devote a good deal of thought to these constructs, few of us ponder the matter much, no matter how often we use a particular framework. 1 Take the ubiquitous income (P&L) statement as an example: It’s a simple yet powerful way to make sense of the myriad transactions that occur in a business. Once we have framed financial exchanges as either revenues or expenses, we can begin asking and analyzing important questions about the business (such as “Why are we losing money?”). By adding a further dimension of assets and liabilities — using a balance sheet framework — we can derive a huge range of ratios and Frameworks are everywhere in business. Some, such as the relationships that provide further insight for managing and BCG growth share matrix, Porter’s Five Forces, and SWOT valuing the enterprise. These concepts — revenue, expense, analysis, have had a lasting impact on business strategy and asset, liability — are so familiar that we may not even practice. And many managers have created frameworks recognize them as conceptual structures. Yet there is nothing related to their own work. But why do some frameworks inherent in this balance system, and it is possible to imagine change the world while others … not so much? And how alternative accounting systems. 2 can business leaders best assess and strengthen the analytical While all frameworks are essentially arbitrary ways of frameworks they use? sorting data, some are so powerful and pervasive that they shape how we see the world. What sets the best ones apart? What’s in a Framework? Below is a rubric of seven criteria for evaluating business frameworks. Any kind of coherent thinking involves some form of conceptual framing. Conceptual frameworks are mental representations that order experience in ways that enable us to comprehend it. While philosophers and cognitive Copyright © Massachusetts Institute of Technology, 2021. All rights reserved. Reprint #62424 sloanreview.mit.edu  MI MITT SLO SLOAN AN MANA MANAGEMENT GEMENT REVIEW Barbara Minto, McKinsey’s first female MBA hire in 1963 Comprehensiveness and an influential figure in the history of management To be effective, a framework must cover a broad spectrum of consulting and the development of analytical the domain it seeks to explain. Such frameworks are either frameworks.) 6 empirically comprehensive (encompassing a wide array of While comprehensiveness is important, it’s not enough on elements that observation and experience have shown to be its own. At worst, comprehensive frameworks are merely important) or logically comprehensive (structured in a way tautological. Consider a model that proposes that there are that makes them complete by definition). two kinds of people: those who believe that there are two Take the example of McKinsey’s empirically comprehensive kinds of people, and those who don’t. True, but not helpful. 7S model of organizational effectiveness, which has proved We need additional criteria for evaluating the quality of to be an enduring management construct. 3 The model analytical frameworks. was developed in the late 1970s to describe how multiple organizational “levers” need to be aligned to enable high Utility and Validation performance. 4 At the time, most organizational strategy focused on a single s, structure — the formal hierarchical Perhaps the most clear-cut criterion is that of utility: Does and reporting relationships in a company’s org chart. By the framework tell us something useful or interesting about expanding the analysis to include other elements of something important? The growth share matrix, created by organizational context — strategy, systems, skills, style, staff, Boston Consulting Group (BCG) founder Bruce Henderson and shared values — the 7S model represents a more in 1970, is perhaps the most renowned analytical framework complete and useful account of internal factors affecting in business. 7 Built on the insight that market leadership performance. There is not, however, an a priori reason there promotes sustainable advantage, the matrix offered a way should be exactly seven elements of the model (rather than, to answer a pressing question for then-dominant say, five or 12), let alone a reason they should all start with conglomerates and diversified industrial companies: how to the letter s. It’s possible that there may be something missing invest resources across their product portfolios. The genius from this model. of the tool was that it provided a simple categorization of the product portfolio in a way that enabled managers to take In contrast, the Eisenhower matrix of time management is action. logically comprehensive. In this framework, purportedly developed by former President Dwight D. Eisenhower and A second dimension of utility might be called adaptability popularized by Stephen Covey, all possible tasks can be — whether a model can be tailored to apply in different arranged into one of four boxes created by the intersection circumstances with different facts. Again, the BCG growth of two axes: the importance of the task and the urgency of share matrix (or BCG matrix) showed its utility in this the task. 5 regard. A growing army of BCG consultants fanned out across the globe to implement the matrix in different Consultants famously love 2x2 matrices, used to represent industries. 8 At its height, the framework was used by everything from product portfolios to situational leadership nearly half of all Fortune 500 companies and propelled BCG strategies. The reason for their popularity can be summed to prominence. up by the acronym MECE: mutually exclusive, collectively exhaustive. A framework is MECE if it is composed of The next criterion, validation, is related to but separate from distinct, non-overlapping categories (mutually exclusive) utility: Is the validity of the framework supported by and if these categories together cover all possible elements empirical evidence and observable data? Insights about the (collectively exhaustive). Because well-constructed 2x2 sustainable cost advantages conferred by market leadership, matrices are always MECE, they are logically upon which the BCG matrix framework is based, emerged comprehensive. (Credit for the concept of MECE goes to from BCG’s rigorous empirical research of the experience Copyright © Massachusetts Institute of Technology, 2021. All rights reserved. Reprint #62424 sloanreview.mit.edu  MI MITT SLO SLOAN AN MANA MANAGEMENT GEMENT REVIEW curve effect. 9 Another recognized framework, McKinsey’s probably recall that there are four P’s and five C’s to consider granularity of growth, disaggregates revenue growth into in any business plan. 10 In the crowded market of ideas, three components (market momentum, M&A, and changes attention-grabbing words and pictures can aid recall and in market share) to identify pockets of growth opportunity. make ideas sticky. The best frameworks produce reliable insights that are grounded in observable data. The McKinsey framework is Integration evaluates the consistency and coherence of the powered by a database of hundreds of companies across a model and the extent to which it hangs together logically. range of industries and subsegments. Models that offer many explanatory factors may suffer from weak integration if how the various elements work together The economist and Nobel laureate Paul Samuelson famously or the relative impact of each is unclear. For example, can asserted that the theory of comparative advantage was one of strengths in some areas compensate for deficiencies the few propositions in the social sciences that was neither elsewhere? Does the framework offer a perspective on which false nor trivial. That’s the sweet spot for the criteria of factors to prioritize or how to sequence efforts to optimize validation and utility: non-false and nontrivial. particular elements? Frameworks can also fail to be integrated if supporting ideas and structures are poorly Clarity, Memorability, and ordered or inconsistent with the overarching thesis. Integration Differentiation The next three criteria are linked to what can be called the A framework can be differentiated from others either by “elegance” of a framework, but they affect more than just recombining familiar elements in a distinctive manner or by aesthetics. These important factors contribute to the proposing novel elements that enable users to see things and usability and distinctiveness of a model. take action in a new way. Clarity covers a number of related ideas, such as familiarity, When Michael Porter proposed in 1980 that there were a simplicity, and parsimony. Frameworks that use common- small number of “generic strategies” that companies could sense language in a familiar way are easier to understand and adopt in pursuit of competitive advantage, this was use. The ability of a model to simplify facts and relationships news. 11 Strategy in the 1970s had been dominated by the in a way that brings them closer to intuition can cut through pursuit of market share and scale in accordance with the complexity to facilitate analysis. Parsimony refers to the idea logic of the experience curve. Porter’s argument that that frameworks should be economical in limiting the companies needed to choose among the cost leadership, number of explanatory factors to the absolute minimum. differentiation, and focus strategies — with the aid of many Multilevel models with dozens of categories, drivers, and new analytical frameworks — made his approach highly subdrivers may achieve comprehensiveness at the expense distinctive. of comprehensibility. Framework makers should strive to follow the dictum attributed to Albert Einstein: Things Twenty-five years later, proponents of the blue ocean should be made as simple as possible, but not simpler. strategy sought to upend Porter’s competitive strategy, claiming that companies could break the trade-off between Structure, visual depiction, or language can help make a cost and differentiation and render competition irrelevant framework memorable. The BCG matrix’s use of symbols by innovating entirely new market spaces. 12 This novel and animals (star, cow, dog, and question mark) makes it take on strategy again required new analytical tools, such as instantly recognizable and helps people remember the the strategy canvas and the four actions framework. While categories. Likewise, the decision to use seven sibilant terms frameworks need not break entirely new theoretical ground, for the 7S model surely played a role in its enduring success. they should offer a fruitful insight or a valuable perspective And anyone who has ever taken a marketing course will that others do not. Copyright © Massachusetts Institute of Technology, 2021. All rights reserved. Reprint #62424 sloanreview.mit.edu  MI MITT SLO SLOAN AN MANA MANAGEMENT GEMENT REVIEW Like the main character in Molière’s play The Bourgeois Gentleman, who is surprised to discover that he has been 5. S.R. Covey, “The Seven Habits of Highly Effective People: Restoring the speaking prose all his life, we may not always realize when Character Ethic” (New York: Simon & Schuster, 1989). we are using conceptual frameworks. Still, we recognize them as essential management tools. Using the seven criteria 6. Barbara Minto has spent most of her career developing and teaching methods for structuring thinking, writing, and problem-solving discussed here can help anyone create more effective according to the Minto Pyramid Principle (B. Minto, “The Minto Pyramid frameworks for their business. Principle: Logic in Writing, Thinking, & Problem Solving” [London: Minto International, 1996]). While most people pronounce the term “MECE” to rhyme with “greasy,” Minto insists that it should be pronounced as a single syllable to rhyme with “niece.” See “Barbara Minto: About The Author ‘MECE: I Invented It, So I Get to Say How to Pronounce It,’” McKinsey, accessed Jan. 27, 2021, www.mckinsey.com. David Gray is an independent consultant specializing in 7. By this point, it should be evident that most of the frameworks cited in this article have “been around the block.” The intention was to choose executive learning and development and has worked for examples that would be familiar to many readers and point out some of some of the leading global management consulting firms. the elements that have led to their successful use and endurance. While not all of these frameworks score high across all points of the rubric, the References most successful constructs hit the mark on many of the evaluation criteria. 8. In the decade of the 1970s, BCG grew from 62 consultants in two offices 1. For one of the few examinations of this topic, see J. Gerring, “What to 277 consultants and seven offices. Makes a Concept Good? A Criterial Framework for Understanding Concept Formation in the Social Sciences,” Polity 31, no. 3 (spring 1999): 9. The experience curve concept, first introduced by Bruce Henderson of 357-393. BCG, holds that a company’s unit production costs falls by a predictable amount for each doubling of “experience,” or accumulated production 2. See, for example, a discussion of historical accounting methods in volume. China in W. Yuan, R. Macve, and D. Ma, “The Development of Chinese Accounting and Bookkeeping Before 1850: Insights From the Tŏng Tài 10. 10.The four P’s are product, price, place, and promotion; the five C’s are Shēng Business Account Books (1798-1850),” working paper 220, London company, customers, collaborators, competition, and climate. School of Economics and Political Science, May 2015. 11. M.E. Porter, “Competitive Strategy: Techniques for Analyzing 3. R. Waterman, T.J. Peters, and J.R. Phillips, “Structure Is Not Industries and Competitors” (New York: Free Press, 1980). Organization,” Business Horizons 23, no. 3 (June 1980): 14-26. 12. W.C. Kim and R. Mauborgne, “Blue Ocean Strategy: How to Create 4. McKinsey’s 7S is referred to by its creators as a model rather than Uncontested Market Space and Make the Competition Irrelevant” a framework. In some technical disciplines, the words “model” and (Boston: Harvard Business School Press, 2005). “framework” are used to refer to different things. For the purposes of this article, I use the two terms interchangeably. Copyright © Massachusetts Institute of Technology, 2021. All rights reserved. Reprint #62424 sloanreview.mit.edu  MI MITT SLO SLOAN AN MANA MANAGEMENT GEMENT REVIEW Evaluation Rubric for Analytical Frameworks These seven criteria delineate the specifics of evaluating business frameworks. Copyright © Massachusetts Institute of Technology, 2021. All rights reserved. Reprint #62424 sloanreview.mit.edu  MI MITT SLO SLOAN AN MANA MANAGEMENT GEMENT REVIEW The Eisenhower Matrix of Time and Task Management This simple matrix, attributed to President Eisenhower, is logically comprehensive (and ubiquitous in business contexts). 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